El Salvador Adopts Bitcoin Amid Glitches and Security Concerns
El Salvador adopted Bitcoin as legal tender Tuesday, deemed
“Bitcoin Day,” following the passing of a law in June, making it the first
country to do so. But while chains such as McDonald’s, Pizza Hut and Starbucks
are now accepting the crypto as a form of payment, the much-anticipated rollout
encountered several glitches. Now, several crypto payment firms are “rising to
the occasion” to help.
President Nayib Bukele tweeted on Sept. 7 that the “Chivo
Wallet,” a storage app created by the government and “the official Bitcoin and
Dollar wallet of the Government of El Salvador,” per its Twitter bio, was
available on major app stores. According to the app’s website, users would
receive a gift of $30 in Bitcoin. The commission-free app enables users to send
money without intermediaries, 24/7, to withdraw dollars whenever they want and
handle the currency they want — BTC or USD.
However, people reported problems downloading and operating
the wallet, which was taken down soon after it went live, Cointelegraph
reports. Bukele then tweeted the app
would undergo a maintenance period to fix the issues.
Several big names however tweeted their enthusiasm,
including Michael Saylor, Microstrategy co-founder, who replied to a user
tweeting a picture buying a Starbucks
coffee with Bitcoin, saying: “#Bitcoin on #Lightning is indestructible money
moving at the speed of light.”
Vanessa Grellet, Head of Portfolio Growth at CoinFund, tells
GOBankingRates that it’s important to understand that the Chivo wallet rollout
in El Salvador has no impact on the underlying security of Bitcoin as a Layer 1
blockchain.
“The primary security risk for Bitcoin transactions involves
the tools used to store, trade and make payments with digital assets — like
certain types of crypto wallets, exchanges and other trading platforms,”
Grellet says. “The security and technical proficiency of those platforms will
be critical factors in driving mainstream adoption of Bitcoin and other digital
assets for everyday retail transactions in the U.S. and elsewhere, like buying
a coffee or groceries.”
According to the text of the law passed in June,
approximately 70% of the population does not have access to traditional financial
services.
“It is the obligation of the state to facilitate the
financial inclusion of its citizens in order to better guarantee their rights;
in order to promote the economic growth of the nation, it is necessary to
authorize the circulation of a digital currency whose value answers exclusively
to free-market criteria, in order to increase national wealth for the benefit
of the greatest number of inhabitants,” she says.
Grellet notes that many citizens are heavily reliant on
income from remittances — money sent from migrants back home — mainly flowing
from the United States.
“Salvadorans leveraging bitcoin transactions through the
launch of the Chivo wallet will help save an estimated $400 million a year on
commissions for remittances. In order to maintain secure payments, Silvergate
Bank, a U.S. federally-regulated and California state-chartered bank, will
facilitate transactions in U.S. dollars,” she says.
She adds that taking effective regulatory measures will help
ensure that crypto wallets, exchanges and other trading platforms are able to
process secure transactions while maintaining safety for users.
“Allowing residents to pay taxes and other debt with
cryptocurrency in addition to hundreds of thousands of businesses accepting
digital currencies as a payment will only aid in driving mainstream adoption,”
she says.
Last year, the 2.5 million Salvadoran living abroad
transferred almost $6 billion, or 23% of the country’s GDP, according to World
Bank Data. Some experts are now cautioning users about the government’s new
wallet.
Alex Gladstein, chief strategy officer for the Human Rights
Foundation, tells CNBC that the Chivo wallet is no different than a bank,
meaning that the government has the authority to freeze the value. He adds that
he believes Salvadorans taking control of their financial destinies by
transferring their bitcoin out of Chivo and into a wallet where they can
exercise more control over the funds, CNBC reports. In addition, Jamie García,
a Salvadoran who lives in the Canadian province of Saskatchewan, tells CNBC,
“Is it hackable? We don’t know yet.”
“I think there’s financial bitcoin hygiene that a lot of
people don’t understand when it comes to a custodial wallet, which is what
Chivo is,” García continued. “It’s not even that people are distrustful of the
government. People are distrustful of platforms like Mt.Gox — centralized
entities that hold money, that have been hacked in the past.”
William Callahan, a former special agent in charge with the
U.S. Drug Enforcement Administration and now serves as the director of
government and strategic affairs for Blockchain Intelligence Group, tells
GOBankingRates, that he can’t say that the new app is 100% safe because he
doesn’t “know the technology behind it.”
“What I can say is that transactions over the Bitcoin
network are peer to peer and have been proven safe and reliable. This will
allow family members to safely transfer value back to El Salvador. I do believe
that money remittances from the U.S. and
Canada to El Salvador will greatly benefit El Salvadorans who will be able to
move money in their pockets and less toward traditional money remittance fees,”
Callahan adds.
Several crypto payment companies, such as Flexa, are jumping
on the Salvadoran opportunity. The company, which deems itself as the “fastest
and most fraud-proof payments network in the world,” announced it would be
enabling Flexa merchants to receive payments via the Lightning Network to
receive payments from more bitcoin holders than ever before, “including users
of Lightning-enabled wallet apps such as Eclair and Chivo,” according to a
release.
As of Tuesday, Flexa-powered Lightning payments are live for
some partners and merchants in El Salvador, “and will be rolling out to all
Flexa merchants in the coming weeks,” according to the release.
And just today, Flexa announced it had partnered with the
largest financial institution in El Salvador, Bancoagrícola, to enable bitcoin
acceptance country-wide. Through this new integration, Bancoagrícola is now
accepting Bitcoin across its network for payments toward loans, credit cards
and merchant goods and services, according to the announcement.
“The bitcoin acceptance solutions introduced by
Bancoagrícola and Flexa today are the first of their kind not only in Latin
America but also across the globe. Bancoagrícola customers can now use any
Flexa- or Lightning-enabled wallet app to pay bitcoin for U.S. dollar-based
loans and credit card payments at the exact fair market rate, without any
additional fee or spread,” according to the announcement.
The company, founded in 2018, says that unlike a traditional
bank or payment card transaction, Flexa payments don’t involve sending any
sensitive customer account information through the network. Instead, each Flexa
transaction starts and ends with a unique, digital authorization code that
can’t be decrypted or reversed. In the U.S. and Canada it is used in more than
41,000 locations, including Barnes & Noble, Express and Lowe’s.
“When this El Salvador regulation got put in place, we
actually got approached by merchants and other entities in El Salvador asking
for us to set this up for them in a compliant way, because they’re working with
our counterparts in the U.S.,” Flexa co-founder Tyler Spalding told CoinDesk in
an interview. “So there ended up being a really great opportunity to help
merchants, and now banks particularly, to be able to process these sorts of
digital payments.
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